Hartford Business Journal

www.HartfordBusiness.com • March 9, 2020 • Hartford Business Journal 15 Winners and losers While Connecticut banks col- lectively reported record profits in 2019, not all of them improved their bottom lines. Of the 35 banks HBJ analyzed, 16 actually saw their profitability decline in 2019. Only one bank — Stamford-based Patriot Bank — lost money last year. And bank size did have some influ- ence over performance. By and large, smaller banks had a harder time boost- ing profits than larger ones. In fact, banks whose profitability declined last year had median assets of $487 million vs. $838 million in median assets for banks whose profits increased. "The smaller you are, the harder it is," said Richard Cantele, immediate past president of the Connecticut Commu- nity Bankers Association and president and CEO of Salisbury Bank, based in the Lakeville section of Salisbury. The need to invest in ever- evolving technology and keep up with regulatory demands, among other issues, has made it harder for smaller banks to compete, which has fueled a decades-long mergers-and- acquisitions wave. In just the last two years People's United Bank and Liberty Bank have picked off Farmington and United banks, and Simsbury Bank, respectively. Over the longer term, the number of Connecticut-based banks in the state has shrunk dramatically from 106 in 1994 to 58 in 2008 and 35 today, FDIC data shows. But size doesn't tell the whole story, warned Cantele, whose $1.1 billion bank posted a 24% profit in- crease last year, to $11.9 million, on higher inter- est income and lower expenses. First, there are one-off sce- narios that can change a bank's fortunes in any given year. For example, Darien-based DR Bank, which has $370 million in assets, saw the largest 2019 profit gain of any bank, growing from a loss of about $12 million to a gain of nearly $116 million, as it sold its Laurel Road digital lending busi- ness to KeyBank. Meanwhile, Stafford Savings Bank, with $304 million in assets, grew its bottom line from $2.4 million to $19.1 million in 2019, almost entirely because of gains on securities. Second, regardless of scale, vary- ing customer bases can also impact results. Some banks skew more heavily toward manufacturers, while others, like Cantele's Salisbury Bank in the state's northwest corner, are less concerned with that sector. "There are little mini economies, even in a small state like Connecti- cut," Cantele said. "What happens in New York City probably impacts us to a larger degree than what hap- pens in Hartford." Klepper-Smith concurs there are no definitive characteristics that determine profitability. "Some parts of Connecticut have grown faster than others simply be- cause of the sectors of the economy that have grown faster than others," he said. "Bank profits will often be based on geography and scale." Good times coming to an end? While banks are on a record run of late, the question for most is: How long can it last? "I hate to say this, but 2019 might be the peak for all of us from an earnings perspective," said Cynthia Merkle, chair of the Connecticut Bankers Association and CEO of Union Savings Bank in Danbury. She is concerned that the Federal Reserve has continued to lower interest rates. While banks can still earn a spread on the interest they charge on loans, it's become harder to do so in a low-rate environment. "We're in uncharted waters," Merkle said. Continuing to post record profits, absent rate hikes from the Fed, is going to be "very difficult" for banks, she added. Interest rates aren't the only concern. Like most economists, Klepper- Smith has been thinking about what might drive the next national reces- sion. The coronavirus, which has been spreading and caused a recent stock market tumble, is a candidate, he said. Different banks could be exposed to different levels of impact, depending on how their customers are affected. Besides those economic and hu- man worries, Klepper-Smith said bank performance this year will come down to a few things. "2020 will be an interesting story in terms of where we go on consum- er fundamentals, interest rates and the stock market," he said. Richard Cantele, President and CEO, Salisbury Bank CT banks that posted highest profits in 2019 2019 net income People's United Bank $543.5M Webster Bank $404.9M DR Bank $115.6M Liberty Bank $65.3M Union Savings Bank $22.2M Bankwell Bank $21.7M Stafford Savings Bank $19.1M Chelsea Groton Bank $18.1M Salisbury Bank and Trust Co. $11.9M Savings Bank of Danbury $11.8M Source: Federal Deposit Insurance Corp. CT bank profits Connecticut bank profits took a beating during the Great Recession but have recovered nicely since. In 2019, the 35 Connecticut-based banks reported $1.3 billion in combined profits, a new record. '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 $0 $300 $600 $900 $1,200 $1,500 In millions of dollars $656M $527M $1,335M $18M Source: Federal Deposit Insurance Corp. Carpools are so cool, they have their own lane. Fewer cars. Better air. Healthier lives. Commuting solutions at CTrides.com

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